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Are REITs the Right Choice?

REITs are all the rave these days, with everything from billboard companies to casinos seeking to hop on board. But there are other ways to get income—with less risk. Consider Sun Communities and Retail Opportunity Investments—and also Honeywell and Merck.

Prisons, casinos, and billboards have something in common. Companies that own these things have recently declared themselves real-estate investment trusts, or are pushing toward doing so.

REITs make money by renting property or collecting mortgage interest. They avoid corporate taxes so long as they pass 90% of their income on to investors as dividends. Companies that have recently announced REIT conversions have enjoyed average stock...